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Debt Collection: Sell Your Debts or Assign Them to a Collector

In the realm of small business challenges, wrestling with bad debts over time can be an exasperating experience. When standard collection methods hit a dead-end, businesses often seek the assistance of third-party collection agencies. At this juncture, a crucial decision arises: should they sell the debts or assign them to a collection agency on contingency?

Debt Collection

Debt Buyers vs. Debt Collectors: Unveiling the Key Distinction

Buyers Own the Debts They Purchase

The first category, known as a debt buyer, involves agencies purchasing debts outright from small businesses. Legally, debts are treated as assets, traded akin to tangible property. Once a business sells a debt to a collection agency, it relinquishes all claims to that debt; ownership is transferred entirely to the buyer.

Buying bad debts is a gamble, often resulting in agencies paying only a fraction of the debt's value. The age of the debt further influences the buying price. Yet, buyers take this risk, anticipating substantial profits when debtors fulfill their obligations.

Collectors Work on Consignment

Contrastingly, a debt collector doesn't buy bad debts; instead, they operate on a consignment model. In this scenario, the collection agency acts on behalf of the creditor, earning a flat fee or a percentage of the collected amount for successful efforts.

Take, for instance, Judgment Collectors, a Salt Lake City agency specializing in consignment-based collection, particularly for outstanding judgments across multiple states. They favor this model due to its lower risk and enhanced motivation for optimal performance.

Strategizing for Maximum Recovery

Efficient debt recovery is the primary goal for small businesses opting for external assistance. The challenge lies in balancing the desire to maximize recovered amounts against the costs associated with collection efforts. Notably, smaller debts often get written off as losses rather than undergoing the collection process.

If the cost of collection surpasses the expected recovery, the venture becomes financially unviable. In such cases, businesses may opt for a less costly route, choosing to forgo additional collection expenses and settling for the original debt amount.

In this context, the consignment model stands out, offering a distinct advantage. Once bad debts are assigned to collection agencies, businesses incur no further expenses. This model positions them to potentially recover more compared to selling debts to buyers.

Adapting Strategies: The Flexibility of Small Businesses

The decision to sell or assign debts hinges on the specific circumstances faced by small businesses. Sometimes, selling debts to collection agencies proves the optimal strategy. Alternatively, assigning debts on consignment emerges as the wiser choice in different scenarios. Small businesses adopt a pragmatic approach, opting for strategies that work best in their unique situations.

Yet, a caveat persists: sending bad debts to collection guarantees a loss of their full value. Collection endeavors demand both time and money, diminishing the overall recovery amount. It's a delicate balancing act where creditors inevitably lose something, regardless of the chosen path.


In the intricate dance of debt collection, small businesses grapple with the challenging decision of selling debts outright or assigning them on consignment. Both paths have merits and drawbacks, ultimately shaping the recovery outcome. The dynamic nature of this decision underscores the adaptability and resilience of small businesses in navigating financial complexities.


Q: What factors influence the purchase price of bad debts by debt buyers?

A: Debt age significantly impacts the buying price, with older debts commanding lower offers.

Q: Why do some collection agencies prefer the consignment model?

A: The consignment model is deemed less risky and motivates agencies to deliver optimal results.

Q: Is there a threshold for debt size that makes consignment more favorable?

A: Smaller debts are often written off as losses, making consignment a more cost-effective option.

Q: How do businesses determine the cost-effectiveness of collection efforts?

A: Businesses weigh the cost of collection against the anticipated recovery; if the former surpasses the latter, collection may not be pursued.

Q: Can small businesses change their approach based on evolving circumstances?

A: Absolutely. Small businesses tailor their debt collection strategy based on the unique challenges and opportunities they encounter.

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